PHIL TOWN

Phil Town recommends website

As you guys know, I almost never blog about someone else’s blog, but you know the old saying about the apple falling not so far from the tree?  Well, this person’s writing is phenomenal.  Really.  The fact that the blog is written by my daughter, Danielle, has nothing to do with praising her work.  Nah. I can’t be bought for love or money….. Well, make that, I can’t be bought for money.  Love is another story altogether.  I love my daughter and I do whatever I can to help her go forward in her life, including subjecting you guys to a brief blog on her new website, BrownButterandBourbon.com . 

First, the name of the website itself is compelling, isn’t it?  Brown Butter & Bourbon?  Doesn’t the title pull on you to find out what it’s all about?  Well, a quick trip to the site will get you to the answer but I’ll spare you the trip.  It’s about Danielle’s unique style developed from her life in Jackson Hole and Wellesley, Mass and Oxford, England and New York, applied to her home dinner parties.  

I mean, seriously, you’ve got to be coming from a different place when you can make something really cool and really beautiful out of an image of a dead salmon lying on an iceberg.  That’s not the first thing that comes to my mind when I’m thinking about having a dinner party.  Of course, the first thing that comes to my mind in that situation is which caterer I should call to take this thing off my hands.  

And maybe that’s the point of her blog – giving us some pretty (if strange and different) ideas of how a little get-together can be easily put together without the caterer.  And maybe that would actually be cool to do.  You know, actually do the dinner ourselves. 

But you guys do that already – do it yourself, I mean.  So for you, her blog will just be another set of cool and unusual ideas for doing it yourself.  Not a bad thing at all.  And her writing style is pretty good reading, if I do say so myself. Perhaps, in spite of her reluctance to admit it, the apple really doesn’t fall far from the tree.

Now go play.

Phil Town

We Learned that in Kindergarten

Jonathan Grubs wrote on my FACEBOOK Page: "I was with Bank of America for many years, but when the Supreme Court announced their ruling on the Kilo case that allowed companies to seize private property for business use and BB&T responded with a press release announcing that they would refuse financing to any company involved in seizing of private property. I sent an email to the president of BB&T letting him know I would switch from Bank of America to BB&T if they ever opened a branch near me in Central Florida. When I saw the BB&T coming soon sign down the road from my office, I was literally the first person in line to open an account at that branch. BB&T is a great bank, they take care of their customers!"    _______________________________________________________________________________

Phil Town's response: "YOU ROCK!!!!  I love people who make decisions by basing the decision on a specific set of values.  Frankly, the Golden Rule is not a bad start for a value system.  For example, if you follow the Golden Rule and you think it is wrong for someone to take what is yours then you wouldn't take someone else's stuff.  Come on you guys. You learn this in kindergarden. So that should be a bedrock value, right?  Don't take other people's stuff.  Simple.

Well, then, apply it to all the decisions you are making in your life, just like Jonathan Grubs does. BB&T follows that value.  Bank of America follows the value of 'mo money mo money'.  Which one do you like better?  Well, some of you like the mo money thing right up until its your stuff they are expropriating and then you don't like it at all.  But I believe that in this world and the next, what goes 'round comes 'round. You go for mo money by taking what isn't yours, you'll pay it back somehow because their is no free lunch. 

You learned that in kindergarden, too.

Now go play.

Phil Town

Where is This Market Going?

WHERE IS THIS MARKET GOING?

When Phil Town was on The Millionaire Inside show with Erin Burnette, he was totally impressed with her.  Obviously, so was CNBC.  They have her fast-tracked and doing the cool stuff.  She’s been traveling lately – Dubai, London.  Checking out where its all going. Are we in a recession headed for a depression or did the stimulus package work magic without ever getting any money into the economy?  She interviewed a money manager who thinks we’re off to the races.  There is an old saying in India – “Your world is as you are.”

And isn’t that just the way stock markets work?  The price of an investment is all about the buyer and seller’s joint agreement on the near term future.  If it looks rosy to both, the price will be high.  If not, not so much.  

Apparently, the mere fact that governments world wide have shown an unlimited willingness to write checks to keep things going has done wonders for buyer-seller perception of the future.  Like – there’s going to be one.  And since there’s going to be one, businesses are going to be able to sell stuff, have revenues and pay employees who will, in turn, go buy stuff from other businesses who will have revenues and pay employees who will….  Well, you get the idea.  

However, value, as I’ve said ad nauseum, is not the same as price.  Coke has a long term value.  It also has a short term price.  They are not the same.  Its price is dependent quite a lot on perception, right now, of what’s going to happen in the near term.  If the sky is not going to fall, well then, price is likely to go up from where it was when the sky seemed likely to land on us.  

So where is this market going?  On March 10^th at 6600 I said its about value.  The market was going to go up because price is not value and the value was quite a lot higher than the price.  At 9800, the price is up so now its about price and price is about ‘as you are’.  The fearful are starting to turn greedy and that means they are becoming buyers.  So where’s it going?  Up.  For a while.  This is now a trader’s market.  Be nimble, kids.  We want to be selling to greed and buying from fear.  Fear is going away.  For a while.  Don’t be caught getting greedy.  If you followed me in March, you’re investments are up 50% in six months.  That is considered good.  

Remember:  Pigs get fat.  Hogs get butchered.  This market is now about price, not value.  Be nimble.  And be ready.

Now go play.

Phil Town

Phil Town's Inflation Strategy Part Dos

INFLATION STRATEGY PART DOS

In 1929 we had less than $1 Billion in circulation in the US because we were tied to the gold standard.   This meant we could not print dollar bills and pretend it was money.  Each $20 of US paper money was backed by an ounce of gold from 1833 when the standard was set and that relationship was unchanged until 1930.   From 1930 until 1970 our government gradually weaned us from the gold standard by increasing the exchange rate to $35 an ounce and thereby artificially increased the number of dollars in the economy to about $10 billion.  In 1971, after years of over-spending on the Vietnam War and The Great Society, Nixon took us off the gold standard.  By 2000, in just 30 years, the government added $990 billion to the money supply.  By 2008, after the 9/11 shock, a severe stock market drop and the recession of 2001-2003, the money supply dropped and then rebounded to $1000 billion.  Since then, in one year, the Bush and Obama governments have doubled the money supply to $2000 billion.  In one year they added more dollars to the economy than in the previous 30 years of inflationary spending.

This money was printed.  It wasn’t earned by inventions that save labor and materials.  It was printed and tossed into the economy.  The impact hasn’t hit yet but it will.  As lending opens up, there will be more demand for products and more demand for higher wages.  You can not have a free lunch.  If all you had to do to become a wealthier nation was to print money, Zimbabwe would rule the earth.  They printed billion dollar bills.  And now it takes $30 billion to buy a loaf of bread.  That is the impact of inflating the currency.  Eventually the money becomes worthless.

So what do you invest in when that happens?  You invest in things that are necessities and things that can raise price as their costs of labor and materials rise. For example, food is a necessity.  The cost to grow food depends on the price of oil because farmers use oil-based fertilizers and drive big tractors that burn a lot of diesel. Oil is being consumed at a rate that is depleting the remaining reserves at 7% per year.  Without a big oil field discovery, in ten years there will be half the oil there is now.  Can you imagine where oil prices will be and thus food prices?

Oil.  Food.  Farmland.  Mining operations.  Railroads.  Coal.  Anything that can raise its prices as its costs go up.  For example, Burlington Northern railroad has a near monopoly on moving coal from the west to the east.  It will raise its shipping rates as union wages and diesel fuel costs rise and the shippers will pay it because they have to have electricity and coal is the fuel for energy plants.  Farmland will rise in price as commodity prices rise. 

And what about gold?  I’ll write more about that next.  And how to find the right investments for these categories.  Oh, and whether you should be buying companies in the US or in China while all this is going on.

Now go play.

 

Phil Town

Payback Time vs. Trading

I love a thoughtful email and this is a good one (see below).  John has been doing some thinking and digging and wants to know why we shouldn't buy and hold a wonderful business we buy on sale instead of trading it.  Its such a good Rule #1 question, John, that I wrote a whole new book about it.  The book is called Payback Time and comes out in March 2010 from Random House.

The short answer is that you are right.  Its better to hold a wonderful business that you bought on sale than to trade it.  Trading has a transaction cost, can be inaccurate in the short run and will certainly cost you some of your profit.  It also has the advantage of getting you out of a stock that is about to take a huge nose-dive.  Trading is insurance against screwing up.  Its not perfect but it is pretty good insurance and it reduces the amount of effort you have to put into determining whether the business is a good one and whether you got the price/value thing right.

Payback Time presents the buy and hold strategy in a whole new light with step by step instructions for implementation.  It starts with the same requirement to get a wonderful business at a great price.  But since we're holding, we're not trading, we HAVE to get the price right.  So I bring in the concept of pricing from Private Equity that I call the Payback Time Price.  Its the price of the business that will be repaid in a very short number of years out of earnings.  The Payback Time Price keeps you from screwing up badly.

Imagine you were going to buy a private business for $1 million.  The business earns $200,000 a year after tax.  It isn't growing.  Therefore, in 5 years you have your money back (assuming you don't need any additional working capital to keep it going).  Notice that from that point on, you don't have any money in this deal.  You are playing with house money.  Your money is off the table.  Now, if the business goes south, you can't lose money.  Once you've got your money out, you are golden.  

Phil Town sees Inflation on the horizon

WHERE ARE WE HEADED? 

President Obama is spending quite a lot of money we don’t have.  To pretend we can handle the extra debt, he (and all the Presidents before him) is keeping the debt obligations of Fannie Mae, Social Security, Medicaid and Medicare off the federal books.  The GAO – the Feds auditor- argues the US is on an ‘unsustainable path’.  According to the GAO, the Congressional Budget Office and the Office of Management and Budget, within 20-30 years the mandatory spending for these entitlement programs will exceed tax revenues.  This means that the entire budget of the United States will have to be borrowed. And it gets worse because the entitlements continue to grow, according to the GAO, to over 6 times the total tax revenue of the country by 2080.  If we were to set aside enough money to cover the entitlement programs and current national debt until 2080, we’d have to park $53 trillion in an account someplace today.   To give you some idea of how deep we’re in it, if we sold China all of the businesses in the US today, we’d get about $11 trillion right now.  In other words, there is no possible way we can pay all of this without some kind of massive austerity program or a phenomenal wave of investment capital.   And neither is even remotely on the horizon. 

There is one other way, however.  We can inflate our way out of the problem.  And inflation, my friends, is a future we investors can count on.

Inflation is the rise in prices and wages created by adding paper money to the economy.  Inflation can not be created by private people.  It can only be created by a government printing press.  To create inflation, the Fed lends money to banks who then lend it to borrowers.  To get the money, the Fed simply prints it. 

More in a day or so about what investments will do well in an inflationary economy.  Get it right and you’ll get rich.

Now go play,

Phil Town

Phil Town-Confidence

After takeoff, as we climbed into the clouds, the pilot transitioned from looking outside the cockpit to see where he was going, to flying entirely by using the instruments on the dashboard. And I? I leaned back my seat and stuck my feet up on the seat facing me and proceeded to take a nap. 

Does it seem odd in any way that I'd easily drift to sleep about the time we were tearing through the clouds at 400 mph with absolutely no way to see where we were going? No. You didn't think anything of it. Nor did I. Because I expected the pilot of the aircraft to be competent and it wasn't a big surprise to me that he did his job without a problem. 

That's also what we should expect from the CEO of any company we invest in. Remember, if we buy one share of something, its no different than if we own the whole thing. Therefore, the CEO is our employee and we should expect ... no, demand, the CEO be as certain to do the right thing as my pilot. 

I don't expect my pilot to wreck the jet. And I don't expect my CEO to crash my company. Pilots go through a certification process and constant re-certification to make sure they are competent. CEO's do the same thing even more often than pilots. The exams are called quarterly and annual reports. The pilot has an FAA examiner who grades him. I am my own examiner and I do the grading. If the pilot fails, he doesn't fly. If the CEO fails, I don't buy. I sell. 

There is on old saying in venture capital (to switch metaphors): Bet the jockey, not the horse. 

Because its all about how they ride the horse, fly the jet, run the business. Its all about competence.

Now go play

Phil Town

New Speaking Dates and New MSNBC "Your Business" Episodes

Here are the new speaking dates for Phil Town on the News and Events page, and here are two upcoming MSNBC "Your Business" episodes:

October 11, 2009
Phil Town on MSNBC “Your Business” - Check your local service provider for television listing and time.
 
November 22, 2009
Phil Town on MSNBC “Your Business” - Check your local service provider for television listing and time.

If you watch them, come back to the blog and let me know what you think!

Now go play.

Phil Town

* * * Update, 9/11 -- more speaking dates for Phil Town have been added in more states - check the News and Events page for more info.

Does "Flash Trading" Affect Rule #1 Investors?

Anthony and Valerie Ball spotted a great article at MSN Money about nano-second computer trading at Goldman Sachs and other investment banks and hedge funds.  Read it to get clear that your mutual fund manager has a serious issue about buying and selling at reasonable prices. 

The question is whether this sort of "flash trading" - high volume small trades in parts of a penny - affects a Rule One investor in any sort of way.

Phil Town on Meaning - Reap What You Sow

I got this letter a couple days ago from Mark that I want to share with everyone. He has a question about one of the 4M's from Rule #1 - Meaning.

Hi Phil Town.  My name is Mark and I've been doing my best to learn as much as possible about Rule #1.  One of your big tenets is Meaning.  What does the company mean to me?  I'm not entirely sure I'm all the way on board with this idea as my main goal is making money, and even an "Evil Empire" like Exxon or their ilk can make a guy a boat load of cash.
 
But I read one of your blog posts about how Karma can come back and haunt you.  Have you ever read the book "The Secret" by Rhonda Byrne?  If you have, do you agree with the idea about laws of attraction?  Could this be why "Meaning" means so much in your investing model?  If I see stocks that are doing well and have the right kind of numbers, do I say no to them just because I may have a moral qualm about them?  Will the universe punish me for being greedy? :)
 
Anyway, I want to thank you for any time you can give me regarding this, and I hope that between RULE #1, the blog and my own research I can get a better understanding of how to find these great companies.

Here's what Phil Town told Mark: